IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE CIV-2019-404-001995 [2019] NZHC 3225 BETWEEN PRECINCT PROPERTIES HOLDINGS LIMITED Plaintiff AND GOLDEN TOWER NZ LIMITED Defendant Hearing: 5 December 2019 Appearances: M R Crotty and S E Closey for the Plaintiff No appearance for the Defendant Judgment: 5 December 2019 ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL Solicitors: Russell McVeagh, Auckland PRECINCT PROPERTIES HOLDINGS LTD v GOLDEN TOWER NZ LTD [2019] NZHC 3225 [5 December 2019] [1] Precinct Properties Holdings Limited is undertaking the Commercial Bay development in the central business district of Auckland. On 30 June 2017 it entered into an agreement to lease levels 38 and 39 of its development to Golden Tower NZ Limited. [2] On 15 November 2017 Precinct received a message from Golden Tower indicating that it no longer intended to go ahead with the lease. Precinct says that it has incurred wasted costs on the agreement to lease. It incurred legal fees and land agent’s leasing fees. These come to $379,375.35. It says that amount is a debt due to it, and it is entitled to serve a statutory demand and ask for a liquidation order. [3] According to the statement of claim, it sued Golden Tower and obtained an order for specific performance on 28 May 2018. It later applied to rescind the order for specific performance and obtained an order for an inquiry into damages, without prejudice to its right to take other steps to recover amounts already due as a result of the repudiation. Gault J gave a minute to that effect on 29 July 2019. Precinct served a statutory demand in August 2019. It served the demand on the address for service of Golden Tower, but those premises seem to have been abandoned. Similarly, the proceeding itself was served at the same address, and again the premises appear to be abandoned. Golden Tower has taken no steps. [4] When the matter was called before me on 1 November 2019, I was concerned whether the damages claim of $379,375.35 amounted to a debt on which a liquidation application could be founded. Precinct has appeared today and has submitted that the relationship between Precinct and Golden Tower is one of immediate creditor and debtor. [5] The issue can be approached by looking at s 288(5) of the Companies Act 1993. That provides: An application to the court for an order that a company be put into liquidation on the ground that it is unable to pay its debts may be made by a contingent or prospective creditor only with the leave of the court; and the court may give such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts. A prospective or contingent creditor cannot issue a statutory demand in its own right. That is because a statutory demand can only be issued for a debt that is owing by the company at the time of the demand. Non-compliance with a statutory demand issued by a prospective or contingent creditor cannot give rise to a presumption of insolvency. In short, a prospective or contingent creditor needs independent evidence of insolvency. [6] The usual approach is that a claim for damages is regarded as a claim by a prospective creditor. There are two cases on point. The first is Re Prime Link Removals Ltd.1 In that case a notice under s 218 of the Companies Act 1955 had been served. The person serving the s 218 notice claimed damages for damage done to panels caused by Prime Link Removals Ltd while carrying them. It is important to note that the Companies Act 1955, as it stood then, contained a provision similar to s 288(5) of the Companies Act 1993: s 219(c) of the 1955 Act. Grieg J noted the difference between contingent or prospective debts and debts that are immediately payable and referred to well-established authorities: Re Pen-Y-Van Colliery Company (1877) 6 Ch D 477; Re Gold Hill Mines [1883] 23 Ch D 210. He was satisfied that the damages claim was at best only a prospective claim. It could not justify a notice under s 218 of the Companies Act, and accordingly there could be no presumption of insolvency. The winding-up petition was held to be ill-founded. [7] Associate Judge Gendall followed a similar approach in Northern Crest Investments Ltd v Robt Jones Holdings Ltd.2 The facts in that case have some similarity to the situation here. There was a lease of commercial premises in central Auckland. The tenant abandoned the premises and the landlord cancelled the lease. The landlord issued a statutory demand, claiming rent that had fallen due after the cancellation and charges for car parks. The charges for car parks had accrued before the cancellation of the lease. The rest of the demand was for sums said to be due after cancellation. Associate Judge Gendall characterised those as a damages claim and held that they could not support a statutory demand. He said:3 1 2 3 Re Prime Link Removals Ltd [1987] 1 NZLR 510 (HC). Northern Crest Investments Ltd v Robt. Jones Holdings Ltd (2009) 19 PRNZ 258 (HC). At [20]. There is no doubt, however, that it is open to the respondent to bring a claim for damages based on the applicant’s default under the lease or its alleged repudiation and to have that claim liquidated by judgment or arbitral award. The amount of any such judgment or award will then constitute “a debt”. Until that happens, however, the respondent’s claim for damages is unliquidated and, as I see it, cannot constitute “a debt”. [8] Counsel in that case referred to the Court of Appeal’s decision in OPC Managed Rehab Limited v Accident Compensation Corporation.4 Notwithstanding that, Associate Judge Gendall held that the Court of Appeal’s decision did not require him to hold that a damages claim could be a debt that could support a statutory demand. I mention that because Mr Crotty likewise tried to persuade me that OPC Managed Rehab Limited would apply in this case. In that case the Accident Compensation Corporation had made payments by mistake, and it had issued a statutory demand relying on a claim for money had and received. The Court of Appeal upheld that as a proper use of a statutory demand. The amount was clearly liquidated. [9] I need to point out, however, that there is not a restitutionary claim in this case. The only possible restitutionary claim that might be made in this case would be a claim made by Precinct following cancellation of the agreement to lease under s 43 of the Contract and Commercial Law Act 2017. But before a debt could arise under that provision, there needs to be a court order. Restitutionary claims arising out of cancellation of a contract do not arise except under the provisions of the Contract and Commercial Law Act. [10] I come back to the point that Precinct’s claim is as a prospective creditor. Its claim will not become a debt until it obtains a court order for payment or some relevant arbitration award. It can do so because it obtained an enquiry as to damages, but until it obtains orders of the court, its claim remains prospective only. [11] Mr Crotty submitted that the amounts could not be disputed, but I probed that. It appears that Precinct has included GST in its damages claim. I expressed some doubt on whether GST can be a component of a damages claim when there has not been any relevant taxable supply between Precinct and Golden Tower. Similarly, 4 OPC Managed Rehab Limited v Accident Compensation Corporation [2006] 1 NZLR 778 (CA). Precinct may mitigate its losses by re-letting the premises. Those issues suggest that it would not be safe to allow damages claims which have not been upheld by court judgments to be treated as immediately payable debts, as opposed to prospective liabilities. [12] Accordingly, I am satisfied that Precinct has not established the grounds for a liquidation order. Being a prospective creditor, it needed to obtain leave under s 288(5) of the Companies Act, and it has not done so. Accordingly, I dismiss the liquidation application. _____________________ Associate Judge R M Bell